Sunday, October 9, 2016

I am alive but still in hibernation

At first I thought I will only start to update my blog when the bear market is here. The logic was to save myself from the anguish of being screw by people for publishing bearish views. During this period of inactivity I spend a lot of time exercising. Yea, I have not dived into swimming pool for a long time and now I am doing that a lot. Whenever I feel like it, I will sink myself in a sofa watching movies or drama. Doing light reading here and there on investment/non-investment related stuffs. At times going to my favorite hawker stalls all over the place. Being able to stay away from financial markets was really great.

Anyway, today I want to share with you on a financial topic.

Recently I came across frustrated shareholder comments in the websphere regarding iCapital. The price started to surge after the AGM...perhaps after the "education" session, many feel compel to buy as a "long term" investment again. Will it last or it's a trap?

There are several investment thoughts out there:

1. iCapital is full of cash now. A market crash will be handy to deploy cash.

When I plotted iCapital Cash as % of NAV vs KLCI, I can see the fund manager has 2 different of thoughts at 2 different cycles. Pre-financial crisis and Post-financial crisis.

Let's look at the pre-financial crisis. You can see KLCI continued to surge and iCapital cash level continued to dwindle in the same direction to the lowest of slightly above 10%. Post financial crisis, as KLCI zoomed ahead and iCapital cash level continued to rise and reached the high level of almost 70% by keep selling their holdings. The fund manager might get angry that if I said that he did not foresee the severity of the last financial crisis and whether next market crisis is a shallow or a very catastrophic one will remain unknown.

We can see that iCapital NAV slide pretty serious during financial crisis and then recovered in tandem with KLCI. The positive point is iCapital outperformed KLCI during recovery period.

Two points that I will leave you to think about if you are thinking to buy aggressively after feeling fired up.

1. When a bear market is here - iCapital NAV will drop also. If there is a serious bear market as iCapital anticipated that KLCI can break below 1,500 or even 1,000 within next 12 - 24 months. If this scenario comes true, let's say the remaining of 30% of holding can decline by 30 - 40%, NAV will drop to about RM 2.8 to RM 2.75 per share. A 20% discount to NAV will force the share to retreat to RM 2.20 level. Long term investors: BEWARE. Don't be a long term investor, be a value investor. RM 2.20 and below for next 2 - 3 years will be about the right accumulation price point.

2. Opportunity cost. iCapital as a disciplined fund manager will take time to deploy cash and also need time for the underlying securities to be recognized by the market. The time can take up to  2 - 3 years after the market capitulated. The whole cycle of market top to fully invested will take up to 5 years. Will many have that kind of patient?

Depressed share price discount to NAV Conspiracy Theory

When the share price of iCapital stagnant for a number of years, some of the investors begin to feel frustrated with the fund manager. What is not helping is City of London begin to accumulate iCapital share. The accumulation was substantial over a period of 5- 6 years with about 16% holdings. The fund manager did not saying very clearly  but if you read in between the lines, iCapital fund manager was implying COL purposely ran bad publicity through media and chat room trying to depress the share price with an objective of accumulating the share at low price. The discount may narrow if they have achieved their objective of accumulation..when they stop buying share price will go up.

My views:

1. Discounts to NAV is normal. If you take a look at the top emerging markets Closed End Funds listed in USA. 10 - 15% discount under Emerging Market funds is not something we should be too alarmed even they pay dividend.

2. iCapital NAV has been moving sideway for a number of years in tandem with the fund manager strategy to raise cash. The share price also more or less mirror that movement. It will continue to do so until iCapital starts to deploy cash to buy stocks and NAV starts to move upward, I think the sentiment may continue to be dampened for a while.

Theory of COL shareholder activism to close down the fund

iCapital has huge supporters and also a number of substantial shareholders have been holding to their shares for a long time.

For example, YM Tunku Tan Sri Dato’ Seri Ahmad Bin Tunku Yahaya/Tunku Sara Binti Tunku Ahmad Yahaya have been the shareholders for about 11 years, since inception of iCapital.

Some other substantial shareholders names like Leow Kok Meow & Sons Sendirian Berhad, Lam Fook Shin, Yeoh Ah Tu, Ocuvas Sdn. Bhd, Lee Siew Lin, etc.have been there for a number of years as well.

If there is any proxy fight, these group of core holders plus some other minority shareholders who are die hard fans of iCapital will easily defeat COL.

So, the probability of COL initiation to close down the fund will be low. Those want to buy and going for a quick flip will be disappointed.

Monday, May 23, 2016

Warren Buffett's Wealth Building Milestone

I replot the data of Warren Buffett's wealth from the link that I found, to examine how he builds up his wealth over the years. It's an amazing chart that look like a hockey stick.

The most profound things about this finding is life of super rich building begins at 50s. Take a look at this chart of how Warren Buffett's nett worth increased over the years. Warren Buffett nett worth is close to about USD 67 billion when he is at his 80s, represent the gains of almost 99% after 50 year old. By the time of 50s, USD 20 million is not a number that impossible for many people to achieve. It is certainly quite achievable but what he did with the foundation that they builds up was really amazing.

"My wealth has come from a combination of living in America, some lucky genes, and compound interest." – Warren Buffett
Time and compounding interest are truly very powerful forces in the universe. I guess I have just witnessed that.

We may not be able to replicate what this man has done but I am certainly learn a few things from him. One thing is really avoiding stupid mistakes. How many of us wasted too much time that we will not be able to replenish once it is gone.It takes a man to 30 years to build up a foundation to be ready to play the biggest game in one's life. The real game starts at 50s.

Secondly what we did after 50s is another thing. Most people may be thinking of starting to spend what they have thinking their days were numbered and better be happy and partying like there is no tomorrow. How wrong!

For sure, we may not be a billionaire by the age of 50s but for sure we got a shot of being a millionaire. If we don't screw up and continue to live prudently, at 10% compounding return, our net worth will grow staggering to over 17 million by the time we reach his age.

My paradigm certainly shifted. Beside knowing compounding interest and time, there is another secret. To many, we may have worked very hard for 30 years and while we were thinking going into retirement and start spending all the hard earned money, consider hoarding it for another 30 years. It will produce wealth that is so big that we may never imagine possible in our lifetime. :)

Tuesday, February 9, 2016

Happy Chinese New Year & Market Forecast

First, greet everyone a happy Chinese New Year.

Market forecast ?

I was sure that many did not realize that the stock markets around the world peaked out in April/May 2015. The bear market momentum was slow at first and now going almost going for a full throttle.

Wednesday, January 20, 2016

Where are we now in the cycle of fear ?

In between dismissal and denial.

Friday, January 1, 2016

Turtleinvestor's Portfolio as at 31 Dec 2015

Happy New Year 2016!

Wow! Soon this Turtleinvestor's portfolio will be coming to 8 years. Was glad that not a single year that this portfolio had gone into a negative year. Out of 7+ years, there is only 1 year that it managed to achieve CAGR of 10%. That year was 2010, the first year, after the market hit a bottom in 2009 financial crisis. I have been either underweight equities or out of stock market since year 2011.

To hit 10% CAGR in 2014, Book Value needs to be around RM 134 k or about 34% from book value as at 31 December 2015. It is not a difficult and certainly possible to catch up during next bear market. How? Assuming KLCI hits about 1,000 points by 2018 or 2 years from 2016 and going back to 1,700 points in 2 years or 2020, CAGR will be close to 9.44%. How?

2015 RM 100 k + 4 years x 888 x 12 = RM 142 k. By the time it goes back to 1,700 or 70% up, RM 142 k x 1.7 = RM 241 k. By using a compounding calculator, period = 143. CAGR will be 9.44%.

My point? You may continue to see me to have about 3.5% for the next 2-3 years and a good possibility of huge spike in 1 year. Based on my years of long enough in the stock market, this is quite a normal trend that a value investor will have boring returns for many years until I hit a home run.

Now you know that why I have not quit yet and still in the game. That is the whole point: never lose money so that I can continue stay in the game.